Corporate governance vital for responsible investments

At the seventh annual Corporate Governance Forum taking place next week in Ho Chi Minh City, the Vietnam Institute of Directors (VIOD) will unveil the VNCG50. The ranking is designed based on the assessment criteria of the ASEAN Corporate Governance Scorecard, incorporating regional best practices alongside Vietnam’s specific corporate governance.

The unveiling of th VNCG50 sets a foundation for a formalised index in the next couple of years

Evaluations for the VNCG50 are conducted by a council led by the Vietnam Stock Exchange, comprising experts from the Ho Chi Minh City and Hanoi bourses, representatives from funds and securities companies, and independent specialists.

The VNCG50 represents a groundbreaking initiative to bridge the gap between corporate governance practices in Vietnam and the broader Southeast Asian region. By selecting 50 pioneering listed companies committed to adopting these standards, the initiative underscores Vietnam’s dedication to improving corporate governance.

This year marked a pivotal moment for advancing corporate governance standards in Vietnam, as rising requirements make effective governance integrated with environmental, social, and governance (ESG) principles not just an option but a critical necessity, according to Ha Thu Thanh, chairwoman of the board at the VIOD. This shift is particularly significant for listed companies and public enterprises.

“Corporate governance must take the lead, building trust and fostering future development while attracting responsible investors and stakeholders. As ESG becomes central to corporate strategy, the focus shifts to embedding sustainability into governance frameworks, ensuring that companies not only meet standards but exceed them to deliver long-term value,” said Thanh.

Thanh emphasised the pivotal role of boards in driving ESG strategies, ensuring transparency, and upholding accountability. “It elevates the holistic benefits of enterprises, moving beyond compliance to achieve excellence and innovation. This allows companies to thrive, serving as not only information channels for investors but also vital resources for regulators, rating agencies, and the broader social and labour communities that are deeply invested in sustainable governance practices.”

According to Phan Le Thanh Long, CEO of the VIOD, the initiative is pivotal as Vietnam consistently ranked below average in the ASEAN Corporate Governance Scorecard across seven evaluations. The 2024 goal includes assessing 69 companies, adhering to English disclosures and report quality. A long-term vision is in place to elevate Vietnam’s average governance score to regional levels by 2026.

“Vietnam has already met quantitative criteria for emerging market classification, yet the true value lies in leveraging this status to enhance transparency and investor appeal,” Long said.

A pressing issue

The VNCG50 Scorecard sets the foundation for a formalised index by 2025-2026. This index will serve as a benchmark for investors, offering significant advantages to listed companies included in its rankings.

“The ultimate goal is to ensure Vietnam’s listed companies not only achieve but exceed regional governance standards, laying the groundwork for sustainable market growth by 2030. By prioritising governance reforms, Vietnam aims to attract institutional investors and create a robust capital market that meets global expectations,” Long added.

Nguyen Thi Bich Ngoc, head of Investor Relations at VPBank, stated that corporate governance is a pressing issue. “In addition to legal compliance, securing green capital to support our customers is crucial. Since 2020, VPBank has actively collaborated with major partners, securing over $2 billion in green funding from institutions like the International Finance Corporation (IFC), Asian Development Bank, and other large financial institutions,” Ngoc said.

In October, VPBank partnered with the Japanese government, receiving over $150 million from the Japan Bank for International Cooperation for green projects.

“With Vietnam’s net-zero targets for 2050, these collaborations will help overcome challenges and ensure continued support for businesses, especially smaller ones, in accessing capital, technology, and marketing. VPBank is committed to being a trusted partner in this journey, sharing experiences, and contributing to sustainable business success,” Ngoc added.

Emphasising the significance of the governance-focused indices, Nguyen Khac Hai, managing director of Legal and Compliance at SSI Securities Corporation, highlighted that the market was increasingly shifting towards the development of governance-based indices driven by growing investor demand.

“Vietnam’s financial landscape is shaped by various factors, with liquidity and network strength of individual stocks within indices being among the most critical. However, beyond traditional financial metrics, indices like the VNSI, a sustainability index developed collaboratively by the domestic stock exchange, and the State Securities Commission, highlight the growing importance of governance-linked metrics.”

This stems from both institutional and retail investors, especially as institutional funds often pool resources from diverse investors.

“SSI, as a key capital connector with its investment banking arm, has worked extensively with foreign investors. Their experience reveals a clear trend that beyond financial metrics, ESG and corporate governance are becoming essential considerations. While ESG and corporate governance may seem distinct, they are deeply interconnected. Companies with strong governance practices inherently enhance long-term sustainability and performance,” Hai said.

Raising additional capital

Good corporate governance, manifested through a strong board, competent leadership, and transparent disclosures, ultimately leads to better business results. As explained by Hai, these practices contribute not only to financial efficiency but also to broader social impacts for Vietnam’s listed companies, embracing such principles is vital.

“The VNCG50 initiative and its future governance index aim to elevate corporate governance standards. By helping listed companies achieve these benchmarks, we can attract greater investment, indirectly benefiting the funds these investors represent,” Hai said. “This dual focus on governance and sustainability is key to positioning Vietnam as an attractive destination for responsible and growth-oriented investments.”

For the IFC, one of the key requirements from its donors and leadership is that the capital used to invest in businesses, especially in developed markets like Vietnam, must meet specific thresholds.

“While the IFC has its own funds, it often raises additional capital from external sources. These sources may sometimes offer more competitive rates, but they are integrated with the IFC’s own capital to maintain a lower cost for enterprises. Some businesses believe that accessing green finance should come with low interest rates, but this is a misconception,” said the IFC’s E&S expert Nguyen Thien Huong.

Ha Thu Thanh, chairwoman, Board of Directors Vietnam Institute of Directors The evaluation covered 600 enterprises from six countries, but only 100 ASEAN enterprises with the highest investment value were selected. Since the sixth evaluation in 2021, Vietnam has had only one representative in this prestigious group, highlighting the significant challenges Vietnamese enterprises face in meeting regional governance standards. Unlike traditional assessments based on typical financial performance indicators, this evaluation focuses on corporate governance quality, risk management, and transparency. Corporate governance uses five core criteria: transparency in governance structures, alignment with shareholder and stakeholder interests, operational efficiency tied to risk management, contributions to community development, and the integrity and long-term commitment of corporate leaders. These criteria emphasise sustainable value over short-term financial gains. One notable example is a petroleum company that maintained its top ranking in governance even during financial struggles caused by falling oil prices. This demonstrates that strong corporate governance is independent of economic fluctuations and remains a stable indicator of enterprise quality. Vietnam currently has over 70 enterprises producing financial reports in English, but few meet the governance standards required to compete among ASEAN’s top 100. To address this, the initial goal is to establish a group of 50 Vietnamese enterprises that achieve international governance benchmarks. This top 50 will serve as trailblazers, exemplifying the commitment to improved governance and transparency, while inspiring others to follow suit. The VNCG50 initiative prioritises governance over financial metrics, positioning corporate governance as the foundation for sustainable growth. By adopting these standards, Vietnamese enterprises can not only access international funding more effectively but also enhance their competitiveness in the ASEAN region, paving the way for long-term success.

Prioritising corporate governance for Vietnam’s sustainable growth Elevating corporate governance standards is crucial for Vietnam’s journey towards sustainable growth and its aspiration to transition from a frontier to an emerging market. Corporate governance is not merely a strategic objective for Vietnamese companies but a critical priority to align with ASEAN benchmarks and attract global investment.

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